NZD/USD Sliding from a Head and Shoulders Pattern

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NZD/USD Sliding from a Head and Shoulders Pattern

The NZD/USD has been bullish in February. It seems like USD has been paring its gains across the board this month, and the kiwi was just another passenger along for the ride. Nonethless, NZD/USD made a bullish correction from 0.7176 to 0.7573.

NZD/USD 4H Chart 2/24
nzdusd 4h chart 2/24
(click to enlarge)

A couple of key developments occurred this week. 
1) Since last week, NZD/USD has been forming a head and shoulders pattern, and price action completed this topping pattern this week.
2) Price extended lower after the H&S top, and broke below February’s rising trendline.

Price is now flirting with a resistance from a previous consolidation earlier in the month, testing it as support. If price can climb back above 0.7450, let’s watch the 0.75-0.7525 area. This represents the lower part of the H&S pattern, and a bearish market should provide resistance here. Otherwise, we might want to anticipate further bullish correction.

Bearish Scenario: But let’s say price holds below 0.75 for the  most part. After today’s price action, pressure will remain towards the 0.7324 and then the 0.7176 low on the year.

Bullish Scenario: Now, what if price does not extend lower, and instead climbs above 0.75 and then stays above it? Then, we have further bullish continuation, but we should limit this outlook against a prevailing downtrend that is still intact.

NZD/USD Daily Chart 2/24
nzdusd daily chart 2/24
(click to enlarge)

From the daily chart, we can see that above the current high, there could be resistance starting around 0.76 up to 0.77. This area represents the lows from a multi-month consolidation at the end of 2014. Also note that the 50-day SMA is around 0.76 and the 100-day SMA is around 0.77, reinforcing this former support area as a possible resistance during a downtrend.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.